Warren Buffett Lieutenant Resigns Amid Stock Purchases

In a very surprise move, a longtime lieutenant of Warren Buffett, David Sokol, resigned from his position at Buffett’s Berkshire Hathaway. Sokol had been considered a possible successor for Buffett’s post as CEO of Berkshire Hathaway.

Bloomberg News

David Sokol

Buffett also dropped a bombshell in a letter about Sokol: he said Sokol had purchased shares of Lubrizol, a specialty chemicals company which Berkshire announced it is buying, before Sokol convinced Buffett on the merits of the deal.

Buffett said neither he nor Sokol believe the stock purchases “were in any way unlawful.” Buffett said Sokol told him the stock transactions weren’t “a factor in his decision to resign.”

This press release will be unusual. First, I will write it almost as if it were a letter. Second, it will contain two sets of facts, both about Dave Sokol, Chairman of several Berkshire subsidiaries.
Late in the day on March 28, I received a letter of resignation from Dave,
delivered by his assistant. His reasons were as follows:

“As I have mentioned to you in the past, it is my goal to utilize the time remaining in my career to invest my family’s resources in such a way as to create enduring equity value and hopefully an enterprise which will provide opportunity for my descendents and funding for my philanthropic interests. I have no more detailed plan than this because my obligations from Berkshire Hathaway have been my first and only business priority.”

I had not asked for his resignation, and it came as a surprise to me. Twice before, most recently two or so years ago, Dave had talked to me of resigning. In each case he had given me the same reasons that he laid out in his Monday letter. Both times, I and other Board members persuaded him to stay. Berkshire is far more valuable today because we were successful in those efforts.

Dave’s contributions have been extraordinary. At MidAmerican, he and Greg Abel have delivered the best performance of any managers in the public utility field. At NetJets, Dave resurrected an operation that was destined for bankruptcy, absent Berkshire’s deep pockets. He has been of enormous help in the operation of Johns Manville, where he installed new management some years ago and oversaw major change.

Finally, Dave brought the idea for purchasing Lubrizol to me on either January 14 or 15. Initially, I was unimpressed, but after his report of a January 25 talk with its CEO, James Hambrick, I quickly warmed to the idea. Though the offer to purchase was entirely my decision, supported by Berkshire’s Board on March 13, it would not have occurred without Dave’s early efforts.

That brings us to our second set of facts. In our first talk about Lubrizol, Dave mentioned that he owned stock in the company. It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings.

Shortly before I left for Asia on March 19, I learned that Dave first purchased 2,300 shares of Lubrizol on December 14, which he then sold on December 21. Subsequently, on January 5, 6 and 7, he bought 96,060 shares pursuant to a 100,000-share order he had placed with a $104 per share limit price.

Dave’s purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea. In addition, of course, he did not know what Lubrizol’s reaction would be if I developed an interest. Furthermore, he knew he would have no voice in Berkshire’s decision once he suggested the idea; it would be up to me and Charlie Munger, subject to ratification by the Berkshire Board of which Dave is not a member.

As late as January 24, I sent Dave a short note indicating my skepticism about making an offer for Lubrizol and my preference for another substantial acquisition for which MidAmerican had made a bid. Only after Dave reported on the January 25 dinner conversation with James Hambrick did I get interested in the acquisition of Lubrizol.

Neither Dave nor I feel his Lubrizol purchases were in any way unlawful. He has told me that they were not a factor in his decision to resign.

Dave’s letter was a total surprise to me, despite the two earlier resignation talks. I had spoken with him the previous day about various operating matters and received no hint of his intention to resign. This time, however, I did not attempt to talk him out of his decision and accepted his resignation.

Effective with Dave’s resignation, Greg Abel, presently President and CEO of MidAmerican Holding Company, will become its Chairman; Todd Raba, President and CEO of Johns Manville, will become its Chairman; and Jordan Hansell, President of NetJets, will become its Chairman and CEO.

I have held back nothing in this statement. Therefore, if questioned about this matter in the future, I will simply refer the questioner back to this release.

Comments (5 of 24)

People should read the article before commenting. Sokol TOLD Buffett about his purchases when he recommended the acquisition. There is NOTHING wrong in finding a company you like, buying it's stock and also recommend it tp your boss, as long as you tell them. And LOL to anyone who thinks Sokol could talk Warren into anything, Warren makes all his own decisions, always has.

9:30 pm March 30, 2011

anonymous wrote :

What are the restrictions around the use of non-public information made available by Citi to interested buyers of the 18 companies, including Lubrizol? Does anyone really wonder why these hign powered executives can repeatedly get ahead when they can utilize such non-public information for their own benefit in addition to the benefit of their company? Sokol is a smart guy - he said this was the one opportunity out of eighteen that was interesting. He used the non-public info to his benefit - didn't matter if Berkshire was the ultimate buyer or if it would have been someone else. I don't know the specific rules so can't say whether it broke any laws.

9:12 pm March 30, 2011

Gary Frugal wrote :

If you follow proper protocol in America you can cheat and steal? I think Dave is on track to setup a family legacy and his decedents will suffer with the name Sokol as their legacy. SHAME ON DAVE
Some smutty smoke in Omaha?

7:53 pm March 30, 2011

swervin wrote :

for a guy who says he is not holding anything back, Buffett's release raises a lot of questions:

notably Buffett says that Sokol tells him the purchases were not a factor in his decision to resign - which is different from Buffett saying it was not a factor in his decision to resign ... claerly it was a factor?

- Buffett doesn't say if he found out the detail of the Sokol trades from Sokol or someone else (SEC etc?) and how much detail did he know - makes it sound like Buffett was under the impression that Sokol had owned a little stock for a long time, not a lot just purchased ahead of the bid

- why did sokol buy and sell stock in December and then buy a $US10 milion lick in January -seems strange he bought so much

- does Sokol keep the $Us3 million (paper?) profit....?

- is the sec investigating?

6:50 pm March 30, 2011

Puzzled wrote :

Sokol is a man of integrity. He just made a mistake here in not following Buffett's newspaper test regarding the pairing of his investment in Lubrizol and suggestion of the deal to Buffett.

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